The Tax Court in Brief July 6– July 10

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The Tax Court in Brief July 6th, 2020 – July 10th, 2020

Freeman Law’sThe Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of July 6th, 2020 through July 10th, 2020


Simpson v. Comm’r, T.C. Memo. 2020-100

July 7, 2020 | Buch, J. | Dkt. No. 427-17

Short SummaryMr. Simpson was an executive coach at Franklin Covey, which described itself as “the world leader in helping organizations achieve results that require lasting changes in human behavior.”  Mrs. Simpson was a teacher and school administrator at Ivy Hall Academy of Provo (Ivy Hall).  As a result of their respective employment with Franklin Covey and Ivy Hall, Mr. and Mrs. Simpson incurred expenses associated with their employment, such as travel, meals & entertainment, and similar expenses.

In addition to their employment, the Simpsons owed two businesses:  Simpson Executive Coaching (Simpson Coaching) (a C corporation) and eBusiness Advisory & Consulting Services (e-BACS) (a partnership).  The stated purpose of Simpson Coaching was to provide executive coaching services to mid- and small-sized businesses.  E-BACS was formed primarily to increase enrollment at, and drive revenue for, Ivy Hall, a non-profit school.

For their 2012, 2013, and 2014 tax years, the Simpsons filed joint returns and claimed deductions for unreimbursed partnership expenses.  They also claimed deductions for unreimbursed employee business expenses for 2014.  The IRS issued a notice of deficiency for the Simpsons’ 2012 through 2014 tax years, which disallowed the unreimbursed partnership expenses and unreimbursed employee business expenses.  After the Simpsons filed a petition with the Tax Court, the IRS filed an amended answer raising new matters and increasing the deficiencies.

Key Issue:  Whether the Simpsons:  (1) may deduct unreimbursed employee business expenses for 2014; and (2) may deduct unreimbursed partnership expenses for 2012, 2013, and 2014.

Primary Holdings

Key Points of Law:

Insight:  The Simpson case was an interesting one, particularly with respect to the Simpsons’ argument that they should be entitled to deduct expenses related to an entity they formed to drive revenue to a non-profit school.  Although they were not entitled to deductions under Section 162, the Simpsons may consider supporting the non-profit school in other ways, such as by making charitable contributions, which would potentially qualify for deduction under Section 170.


Seril v. Comm’r, T.C. Memo. 2020-101

July 8, 2020 | Lauber, A. | Dkt. No. 4491-19 

Short SummaryPetitioner contested the IRS’ determination that a distribution from her retirement account was taxable, that she was liable under IRC §72(t) for the 10% additional tax on early distributions from the account, and that she was liable for an accuracy-related penalty under IRC §6662(a).  The Tax Court found in favor of the IRS, but held that Petitioner was not liable for the assessed accuracy-related penalty.

Key Issue:  Can a taxpayer who is not disabled and under the age of 59½ be taxed on distributions from a retirement account which were not used for education expenses or not rolled over into another eligible retirement account?

Primary Holdings

Key Points of Law:

InsightThe Seril case highlights certain tax issues that can befall a taxpayer who takes out early distributions from a retirement account.  Further it reinforces the need for strict compliance with applicable laws regarding early distributions to avoid unintended taxable income consequences.  It also demonstrates that a taxpayer considering early distributions from a retirement account should consult with a tax professional before taking a distribution.


Englewood Place, LLC v. Comm’r, T.C. Memo. 2020-105 

July 9, 2020 | Lauber, J. | Dkt. No. 1560-18

Short SummaryThe case involved charitable contribution deductions for conservation easements.

In December 2008 Englewood acquired, by contribution from HRH Investments, LLC (HRH), a 135-acre tract of land in Effingham County, Georgia. On July 29, 2011, Englewood donated a conservation easement over 130 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization” for purposes of section 170(h)(3).

The easement deed recited the conservation purposes and generally prohibits commercial or residential development. But it reserves certain rights to Englewood as grantor, including the rights to conduct commercial agricultural and timber-harvesting activities within the conserved area.

The deed recognizes the possibility that the easement might be extinguished at some future date. In the event the Property were sold following judicial extinguishment of the easement, paragraph 17 of the deed provided that “[t]he amount of the proceeds to which Grantee shall be entitled, after the satisfaction of any and all prior claims, shall be determined, unless otherwise provided by Georgia law at the time, in accordance with the Proceeds paragraph.” Paragraph 19, captioned “Proceeds,” specified that the grantee’s share of any future proceeds would be determined:

by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement.

Key Issues:  Whether the taxpayer is entitled to a charitable deduction for its grant of a conservation easement.

Primary Holdings: The Taxpayer is not entitled to a charitable deduction for the gran of the conservation easement.  The conservation purpose underlying the easement was not “protected in perpetuity” as required by section 170(h)(5)(A).

Englewood’s deed failed to satisfy the “protected in perpetuity” requirement for two reasons.

Key Points of Law:

InsightThe questions presented in this case are substantially identical to those previously decided adversely to the taxpayers in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12, 2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159.  The case illustrates the IRS’s continued focus on conservation easements.  The opinion was issued along with several other conservation-easement opinions on the same date based on substantially the same facts, reasoning, and legal authorities.


Dodson v. Comm’r, T.C. Memo. 2020-106 

July 9, 2020 | Lauber A. | Dkt. No. 7859-19L 

Short SummaryPetitioner sought review, pursuant to I.R.C. § 6330(d)(1), of the IRS determination that the taxpayer was not eligible to enter into an installment agreement.  The Tax Court held that the settlement office did not abuse her discretion in sustaining the proposed collection actions, as the taxpayer did not qualify for an installment agreement.

Key Issue:  Whether the settlement officer abused her discretion in determining that the taxpayer did not qualify for an installment agreement.

Primary Holdings

Key Points of Law:

InsightThe Dodson case illustrates generally how the Tax Court reviews a settlement officer’s determination regarding an installment agreement.  The case provides an overview of the standards of review in play, but it also demonstrates the importance of reviewing a taxpayer’s financial information prior to submission to determine if a taxpayer may qualify for a collection alternative, or if the taxpayer may need to liquidate assets in order to pay the liability in full.  The Tax Court will rarely substitute its own judgment in place of the settlement officer’s determination.  Thus, it is important to ensure that all best efforts are made at the appeals level to secure a positive outcome for a taxpayer.


Maple Landing, LLC v. Comm’r, T.C. Memo. 2020-104

July 9, 2020 | Lauber, J. | Dkt. No. 1996-18

Short SummaryThe case involved charitable contribution deductions for conservation easements.

In December 2008 Maple Landing acquired, by contribution from HRH Investments, LLC (HRH), a 293-acre tract of land in Effingham County, Georgia. On December 30, 2010, Maple Landing donated a conservation easement over 283 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization for purposes of section 170(h)(3).

The easement deed recited the conservation purposes and generally prohibits commercial or residential development. But it reserves certain rights to Maple Landing as grantor, including the rights to conduct commercial agricultural and timber-harvesting activities within the conserved area.

The deed recognizes the possibility that the easement might be extinguished at some future date. In the event the Property were sold following judicial extinguishment of the easement, paragraph 17 of the deed provided that “[t]he amount of the proceeds to which Grantee shall be entitled, after the satisfaction of any and all prior claims, shall be determined, unless otherwise provided by Georgia law at the time, in accordance with the Proceeds paragraph.” (Neither party contends that Georgia law “otherwise provide[s].”) Paragraph 19, captioned “Proceeds,” specified that the grantee’s share of any future proceeds would be determined:

by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement.

Key Issues:  Whether the taxpayer is entitled to a charitable deduction for its grant of a conservation easement.

Primary Holdings: Maple Landing’s deed fails to satisfy the “protected in perpetuity” requirement for two reasons.

Key Points of Law:

InsightThe questions presented in this case are substantially identical to those previously decided adversely to the taxpayers in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12, 2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159.  The case illustrates the IRS’s continued focus on conservation easements.  The opinion was issued along with several other conservation-easement opinions on the same date based on substantially the same facts, reasoning, and legal authorities.


Riverside Place, LLC v. Comm’r, T.C. Memo. 2020-103

July 9, 2020 | Lauber, J. | Dkt. No. 2154-18

Short SummaryThe case involves charitable contribution deductions for conservation easements.

In December 2008 Riverside acquired, by contribution from HRH Investments, LLC (HRH), a 119-acre tract of land in Effingham County, Georgia. On December 30, 2009, slightly more than one year later, Riverside donated a conservation easement over 114 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization” for purposes of section 170(h)(3).

The easement deed recites the conservation purposes and generally prohibits commercial or residential development. But it reserves certain rights to Riverside as grantor, including the rights to conduct commercial agricultural and timber- harvesting activities within the conserved area. Riverside also reserved the right to construct within the conserved area “a limited number of new improvements.”

The deed recognizes the possibility that the easement might be extinguished at some future date. In the event the Property were sold following judicial extinguishment of the easement, paragraph 17 of the deed provided that “[t]he amount of the proceeds to which Grantee shall be entitled, after the satisfaction of any and all prior claims, shall be determined, unless otherwise provided by Georgia law at the time, in accordance with the Proceeds paragraph.” (Neither party contends that Georgia law “otherwise provide[s].”) Paragraph 19, captioned “Proceeds,” specified that the grantee’s share of any future proceeds would be determined:

by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement.

Key Issues:  Whether the taxpayer is entitled to a charitable deduction for its grant of a conservation easement.

Primary Holdings: The conservation purpose underlying the easement was not “protected in perpetuity” as required by section 170(h)(5)(A). For that reason the charitable contribution deduction claimed by Riverside is denied in its entirety.

Riverside’s deed fails to satisfy the “protected in perpetuity” requirement for two reasons.

Key Points of Law:

InsightThe questions presented in this case are substantially identical to those previously decided adversely to the taxpayers in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12, 2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159.  The case illustrates the IRS’s continued focus on conservation easements.  The opinion was issued along with several other conservation-easement opinions on the same date based on substantially the same facts, reasoning, and legal authorities.


Village at Effingham, LLC v. Comm’r, T.C. Memo. 2020-102 

July 9, 2020 | Lauber, J. | Dkt. No. 2426-18

Short SummaryThe case involves charitable contribution deductions for conservation easements.

In December 2008 Village acquired, apparently by contribution from HRH Investments, LLC (HRH), a 175-acre tract of land in Effingham County, Georgia. On December 28, 2010, Village donated a conservation easement over 165 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization” for purposes of section 170(h)(3).

The deed recognizes the possibility that the easement might be extinguished at some future date. In the event the Property were sold following judicial extinguishment of the easement, paragraph 17 of the deed provided that “[t]he amount of the proceeds to which Grantee shall be entitled, after the satisfaction of any and all prior claims, shall be determined, unless otherwise provided by Georgia law at the time, in accordance with the Proceeds paragraph.” (Neither party contends that Georgia law “otherwise provide[s].”) Paragraph 19, captioned “Proceeds,” specified that the grantee’s share of any future proceeds would be determined:

by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement.

Key Issues:  Whether the taxpayer is entitled to a charitable deduction for its grant of a conservation easement.

Primary Holdings: The conservation purpose underlying the easement was not “protected in perpetuity” as required by section 170(h)(5)(A). For that reason the charitable contribution deduction claimed by Village is denied in its entirety.

Key Points of Law:

InsightThe questions presented in this case are substantially identical to those previously decided adversely to the taxpayers in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12, 2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159. The case illustrates the IRS’s continued focus on conservation easements.  The opinion was issued along with several other conservation-easement opinions on the same date based on substantially the same facts, reasoning, and legal authorities.

 

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